Savings Rate calculator

Your savings rate determines how quickly you will achieve financial independence.

The higher your savings rate, the fewer years before you are financially free.

Savings Rate Calculator

This Savings Rate calculator lets you find out how many years until you are financially independent based on your savings rate.

How to use the savings rate calculator

Fill in you current age, annual gross income, annual disposable income (the money that reaches your bank account), choose a safe withdrawal rate.

The calculator will then work out your gross and net savings rate, the number of years it will take to reach financial independence with zero capital today, and the age you will be when you reach financial independence.

We use the safe withdrawal rate as this factors in inflation and sequence of returns downturns in the stock market (i.e. the risk of a crash). Using the safe withdrawal rate gives you a high confidence savings rate. If you are more bullish, you could amp up the rate by a percentage or two.

Example output from the savings rate calculator

Savings Rate Calculator

In this example, Doris is aged 30, and earns $50,000 each year. She receives $3,500 income after tax into her bank account and manages to save a hefty $2,000 a month.

As a result, Doris has a gross savings rate of 48%, a net savings rate of 57.1% and needs $450,000 to reach financial independence.

The savings rate calculator reveals it will take Doris 14.3 years to reach financial independence. She will be free by age 44.

The higher your save rate, the faster you will reach financial independence.

Financial freedom through a high save rate.

Low savings rates lead to financial dependence

We’ve just seen how Doris will be able to retire, or sale the world in 14 years thanks to her high savings rate.

Now, we will look at Errol.

Low savings rate from the savings rate calculator

Errol is in the same situation as Doris. He’s also aged 30, with a good job paying $50,000. The only difference is that Errol only has a grosssavings rate of 12%.

This is still a better savings rate than the average of almost all developed nations.

But a low savings rate will not bring quick financial freedom to Errol.

We can see that it will take him 49.6 years to be financially independent at a 4% real return. That means he would be 80 years old before he is financially free.

Errol would get financial freedom much quicker by increasing his savings rate.

Why does savings rate determine how soon you get to financial independence?

Your savings rate determines how much of your income you need to live on.

Your savings rate is the proportion of your income left over after all your income after tax and all other expenses has been deducted.

As you increase your savings rate, a couple of different things work together. Each one helping you accelerate towards financial independence.

  1. The amount you spend reduces. Think about it, the only way you can save more with at the same income level is to spend less. The less you spend, the smaller pot of investments you will need to reach financial independence.
  2. You increase your investments. The more you save, the more you can invest. That investment generates a return year in and year out. The return compounds, making even more money!

So, by saving more of your income, you prove you need less money to spend in the future. And you keep more money to invest for your future.

It’s a miracle that should be taught in every school up and down the land.

Is increasing the savings rate the only way to reach financial freedom?

There are three main ways to drive towards financial freedom.

  • Reduce your spending – this increases your save rate
  • Increase your income – this may allow you to save more
  • Improve your investment return – the more you save, the more you can invest.
Financial Freedom through reducing expenses, increasing income and improving investment returns
How to get financial freedom

Achieving financial freedom is a balancing act.

What next?

You can learn the ten building blocks to financial freedom. Or read more ideas, thoughts and discoveries in the whispermoney Blog.

If you’re thinking – I want to be a millionaire? -, there’s a calculator for that too.